U.S. Xpress pivots from Variant
U.S. Xpress is going through a reorganization following a recent round of layoffs. The technology-driven Variant program will be merged into a larger Highway Services group, which will include the legacy over-the-road business and the USX freight brokerage. The company also announced a termination of the lease on Variant’s Atlanta headquarters due to the reduction in workforce and remote options.
In a call with analysts Thursday afternoon, Eric Fuller, CEO of U.S. Xpress, said, “I think when you look at turnover in our industry, when it is really bad, it is usually equated to a lack of utility.”
Fuller added, “A lot of things from a tech standpoint were designed around driving utility and, for a number of reasons, those strategies were not successful. So we’re getting back to the basics from a utility standpoint.”
Tractor utilization as a form of aggregate revenue miles is an important performance indicator for trucking companies. FreightWaves’ John Kinston wrote: “The numbers back up Fuller’s statement on ‘utility.’ In the second quarter, average revenue miles per tractor per week at U.S. Xpress on a consolidated basis — dedicated and truckload — was 1,607 miles, compared to 1,722 in Q2 of 2021. In the first quarter, the total was 1,577, compared to 1,724 miles in 2021’s Q1.”
In addition to the reorganization, CFO Eric Peterson noted the company will make adjustments in its fleet trade cycle by holding on to tractors longer and running them an additional 100,000 miles. This change is expected to raise the fleet’s average tractor age from 22 to 27 months with “minimal” impact on maintenance costs, according to Peterson.
With these changes, the company is targeting an operating ratio in the ballpark of a low-90% or high-80% range. For reference, USX second-quarter results came in at 100% OR for consolidated operations.
Truckload volumes’ post-Labor Day slump
Outbound tender volumes remain depressed following Labor Day with the OTVI nationwide index closing at 10,412 index points, 2.3% lower year over year when OTVI was at 13,617 points. Traditionally there are gaps in outbound tender volumes as shippers and distribution centers ramp up following an extended holiday weekend. For carriers, the major focus moving into the fourth quarter will be whether outbound tender volumes resume their previous levels of around 12,000 to 12,500 index points, or if there will be a notable decline in tender volumes as high inventory levels from large retailers depress full truckload demand.
Geopolitical events continue to have an outsize impact on the macroeconomic outlook, which in turn has a direct impact on freight volumes. Large truckload carriers that predominantly rely on year-round contracted truckload volumes for sustained load volumes will note isolated disruptions as their customer mix will be impacted by inventory levels and consumer demand in different ways. For smaller carriers and owner-operators, expect continued deterioration of spot market rates, as brokers and other carriers seek to undercut each other on dwindling spot market opportunities.
Anecdotally, various trucking media outlets have reported that incumbent truckload carriers and brokers are approaching shippers and offering rate decreases outside the traditional RFP window. This behavior suggests that trucking companies are well aware that their repeated record quarters of profits and margins may be at risk.
Market update: Consumer sentiment improves, remains worse than COVID lockdowns
The University of Michigan’s survey of consumer sentiment recently released its August data, and while there is some improvement, sentiment remains lower than levels seen during the pandemic lockdowns.
The survey notes: “The final August reading continued the early month improvement in consumer sentiment, rising 13.0% above July but remaining 17% below a year ago. Most of this increase was concentrated in expectations, with a 59% surge in the year-ahead outlook for the economy following two months at its lowest reading since the Great Recession (see chart). In addition, personal financial expectations rose 12% since July. The gains in sentiment were seen across age, education, income, region, and political affiliation, and can be attributed to the recent deceleration in inflation. Lower-income consumers, who have fewer resources to buffer against inflation, posted particularly large gains on all index components. Their sentiment now even exceeds that of higher-income consumers, when it typically lags higher-income sentiment by over 15 points. Hopefully this tentative improvement will continue, as overall sentiment remains extremely low by historical standards.”
Freight volumes and truckload demand are closely tied into consumer buying patterns. If consumer sentiment remains depressed, expect less consumption and fewer inventory replenishment orders within the supply chain.
FreightWaves SONAR spotlight: Rejection rates react in eerily similar fashion to 2019
Summary: During the previous three years, rejection rates increased throughout the week leading up to holidays. Even back in 2019, when the freight market was remarkably soft, the national rejection rate increased by 51 basis points leading into the Labor Day holiday. The increases in 2020 and 2021 were even larger, despite rejection rates of over 20% at the time.
With the freight market’s softening in 2022, rejection rates haven’t reacted as significantly to holidays as in years prior. This year, rejection rates were just 22 bps higher in the week prior to Labor Day.
With the muted rejection rate increase leading into Labor Day, the outlook for the capacity side of the freight market looks bleak in September. The Outbound Tender Reject Index (OTRI) is just 108 bps higher than in 2019, which was one of the softest freight markets in recent history.
OTRI could fall below 2019 levels in the coming weeks, which will put further downward pressure on spot rates, but will also lead to shippers seeking to lower contract rates with the use of traditional RFPs as well as shorter bid cycles that were increasingly used throughout the past two years.
The Routing Guide: Links from around the web
Queen Elizabeth II has died, Buckingham Palace announces (BBC)
UPS lies low as FedEx Ground contractor dispute simmers (FreightWaves)
How federal dollars could boost training for trucking, manufacturing jobs in central California (PBS)
LTL stocks sag on weaker-than-expected Q3 updates (FreightWaves)
Policy changes on horizon for autonomous and electric trucks (FreightWaves)
Carriers weigh in on peak season and contract rates (FreightWaves)
